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Apr

2012

Natural gas price forecast: Have we finally hit the bottom?

by Fred Marion

Blame it on the mild winter, oversupply or short-sellers. Any way you slice it, though, it’s been a terrible year for natural gas investors. In the four-and-a-half short months since the start of the year, natural gas prices have plummeted 34 percent. Trading this week marked the first time in 10 years that natural gas has fallen below $2 per million British thermal units.

That’s got a lot of investors thinking the commodity may be nearing a bottom. I’m not entirely convinced now’s the time to go long natural gas, but the bulls do have a few good points:

1) Closing rigs. When word got out in January that natural gas producers were cutting production in the face of low prices, hedge funds starting pouring money into natural gas. That bet hasn’t paid off yet, but the trend is still the same. Natural-gas ETFs saw net inflows grow to $192 million during Q1 2012 (per the Wall Street Journal).

“I have to think you’re close to a bottom,” T. Boone Pickens told CNBC. “You’ve got the rig count going down. That’s what you want to watch.”

Pickens says 10 to 15 rigs shut down this week. That should slow the over-production that’s led to plummeting prices.

2) Investor interest in natural gas is growing. Trading volumes in natural-gas futures surged 30 percent in the first quarter, according to the Wall Street Journal. “A lot of people are seeing this as a trend that they can follow … and there is also a lot of interest on the value side, people trying to pick a bottom,” Kyle Cooper, managing partner at IAF Advisors, told the newspaper. Once the value investors scare off the bears, the bottom will finally be set.

3) Experts thought the bottom was in at $4. You’ve got to feel for Chesapeake Energy Corporation (NYSE:CHK). The second-largest natural-gas driller in the U.S. sold off most of its hedges against falling natural gas prices late in 2011 (again per CNBC). They thought prices had bottomed, only to see them plunge to $2. While they did make money on their trades at the time, they could have made a whole lot more. And now, without those derivatives, they could potentially lose money producing natural gas if prices continue to fall.

In the words of Baron Rothschild, “The time to buy is when there’s blood in the streets.” That time just might be now.

Not everyone’s bullish on natural gas, though. Susquehanna analyst Duane Grubert was quoted by Barron’s as saying natural gas prices “well below $1.50″ are within in realm of possibility.

Are you a contrarian ready to call a bottom in natural gas prices? Check out our post, How to invest in natural gas or The top 5 best natural gas ETFs.

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Tags: CHK, Natural Gas Price Forecast, Natural Gas Price Predictions
Posted in commodities, energy stocks | No Comments »

Sep

2011

Full list of lithium stocks and lithium mining stocks

by Fred Mason

Lithium stocks are frequently compared to oil stocks. While oil powered the vehicles of the past, lithium-ion batteries will likely be integral to almost all forms of transportation in the future (see my post How to invest in lithium stocks). That means lithium mining companies stand to profit handsomely in the years to come. Here’s a full list of the biggest lithium mining stocks and lithium-related companies as well as their current market caps:

Stock	Ticker	Market Cap
Global X Lithium ETF	NYSE:LIT	$99 million
Market Vectors Rare Earth/Strategic Metals ETF	NYSE:REMX	$250 million
Sociedad Quimica y Minera	NYSE:SQM	$6.7 billion
FMC Corporation	NYSE:FMC	$4.9 billion
Rockwood Holdings, Inc.	NYSE:ROC	$3.02 billion
GS Yuasa Corporation	TYO:6674	$149 billion
Saft Groupe SA	EPA:SAFT	$498 million
Galaxy Resources Limited	ASX:GXY	$198 million
A123 Systems, Inc.	NASDAQ:AONE	$511 million
Canada Lithium Corp.	TSE:CLQ	$133 million
Valence Technology, Inc.	NASDAQ:VLNC	$177 million
Exide Technologies	NASDAQ:XIDE	$310 million
Advanced Battery Technologies, Inc.	NASDAQ:ABAT	$87 million
TALISON LITHIUM LTD.	TSE:TLH	$320 million
Orocobre Limited	ASX:ORE	$119 million
Avalon Rare Metals	AMEX:AVL	$257 million
Reed Resources Ltd.	ASX:RDR	$85 million
Ultralife Corp.	NASDAQ:ULBI	$85 million
Lithium One Inc.	CVE:LI	$51 million
Lithium Americas Corp.	TSE:LAC	$94 million
China BAK Battery Inc.	NASDAQ:CBAK	$58 million
Electrovaya Inc.	TSE:EFL	$87 million
Coslight Technology International Group	HKG:1043	$733 million
Ener1, Inc.	NASDAQ:HEV	$33 million
Western Lithium USA Corporation	TSE:WLC	$44 million
TNR Gold Corp.	CVE:TNR	$8 million
Latin American Minerals Inc.	CVE:LAT	$16 million
RODINIA LITHIUM INC.	PINK:RDNAF	n/a
Greenlight Resources Inc.	PINK:PRZCF	n/a
FIRST LITHIUM RES INC.	PINK:FLNTF	n/a
Polypore International, Inc.	NYSE:PPO	$2.73 billion
Altair Nanotechnologies, Inc.	NASDAQ:ALTI	$71 million
Lithium Technology Corporation	PINK:LTHU	$40 million
CANASIA INDUSTRIES CORPORATION	CVE:CAJ	$5 million
Channel Resources Ltd.	CVE:CHU	$29 million

In the face of a global economic slowdown, it’s been a rough year for lithium stocks. Of the lithium stocks listed above, only two have posted net gains on the year: Polypore International, Inc. (+44 percent) and Rockwood Holdings, Inc. (+0.064 percent). Here are the top five lithium stocks losers year-to-date:

Company	YTD Performance
Ener1, Inc.	-94%
Canada Lithium Corp.	-73%
RODINIA LITHIUM INC.	-71%
Advanced Battery Technologies, Inc.	-70%
TNR Gold Corp.	-70%

If I’ve overlooked any lithium stocks, lithium mining stocks, or lithium-related stocks, please note them in the comments section, and I’ll add them to this post.

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Tags: ABAT, ALTI, AONE, ASX:GXY, ASX:ORE, ASX:RDR, AVL, CBAK, CVE:CAJ, CVE:CHU, CVE:LAT, CVE:LI, CVE:TNR, EPA:SAFT, FMC, HEV, HKG:1043, LIT, lithium, lithium mining stocks, lithium-ion stocks, PINK:FLNTF, PINK:LTHU, PINK:PRZCF, PINK:RDNAF, PPO, rare earths, rare earths stocks, REMX, ROC, SQM, TSE:CLQ, TSE:EFL, TSE:LAC, TSE:TLH, TSE:WLC, TYO:6674, ULBI, VLNC, XIDE
Posted in base metals, commodities, energy stocks, mining stocks | No Comments »

Sep

2011

How to invest in lithium stocks

by Fred Mason

Looking at investing from a macroeconomic view, it’s difficult to find arguments against the future of lithium. In the words of Forbes, “The gas engine made petroleum the world’s biggest commodity. The electric car could do the same for (lithium).”

When Tesla Motors Inc. (NASDAQ:TSLA) unveiled the company’s luxury electric car, the Roadster, it took the rest of the car industry by surprise. Chevy and Nissan had banked on enormous lithium batteries in their respective electric cars (the Volt and the Leaf), while the Roadster linked together thousands of small lithium-ion batteries (not unlike what you’ll find in your laptop). The net effect was lower costs and higher performance.

No matter what the end battery looks like though, most of the world’s top electric vehicles rely on lithium battery technology to store and deliver energy. And the demand for lithium carbonate and lithium metal should climb rapidly alongside demand for electric cars and mobile gadgets with long battery lives.

As with any emerging industry, investing in lithium stocks requires a lot of homework. Here are three ways to bet on the industry:

1) Invest in a lithium ETF. There are currently two lithium-related ETFs that trade on the New York Stock Exchange (see my post ETFs explained in pictures for information on ETFs). The first, Global X Lithium ETF (NYSE:LIT) is a pure-play on lithium stocks. It seeks to replicate the yield of the Solactive Global Lithium Index – an index composed of “companies active in exploration and/or mining of Lithium or the production of Lithium batteries.” Buying shares in LIT is like investing in each of the 20+ companies that comprise the Solactive Global Lithium Index.

The second lithium ETF on the NYSE is the Market Vectors Rare Earth/Strategic Metals ETF (NYSE:REMX). REMX invests in companies engaged in the mining of lithium, but also 48 other rare earth and strategic metals companies. That makes REMX far less of a pure play on lithium, but it does distribute risk across several other elements that are increasingly used in high-tech products including wind turbines and hybrid vehicles.

2) Invest directly in lithium stocks. There are a number of companies that are engaged in the mining and production of lithium. The biggest beyond a doubt, though, is Sociedad Quimica y Minera (NYSE:SQM). Based in Chile, SQM produces nearly 30 percent of the world’s lithium carbonate. The company holds rights to huge swaths of the Salar de Atacama – a Chilean lake bed that’s purported to hold 27 percent of the world’s lithium. Here’s a list of the world’s top five biggest lithium stocks (including SQM) and their stock performance year-to-date:

Stock	YTD Gain
Sociedad Quimica y Minera (NYSE:SQM)	-19.25%
FMC Corporation (NYSE:FMC)	-13.8%
Rockwood Holdings, Inc. (NYSE:ROC)	+.64%
GS Yuasa Corporation (TYO:6674)	-34.7%
Saft Groupe SA (EPA:SAFT)	-28%
Galaxy Resources Limited (ASX:GXY)	-56.9%

As you can see, it hasn’t exactly been a banner year for lithium stocks, but that could change quickly if and when the global economic gloom starts to lift (or if we suffer through higher crude oil prices). If that happens, you can expect penny lithium stocks to outperform their larger rivals (see my post Top five penny lithium stocks).

3) Invest in car companies that harness lithium technology. The most promising area in lithium technology is the electric vehicle industry. Several companies in the space stand out including:

Tesla Motors Inc. (NASDAQ:TSLA): Manufacturer of the all-electric Tesla Roadster
General Motors Company (NYSE:GM): Manufacturer of the hybrid Chevy Volt
Nissan Motor Co., Ltd. (PINK:NSANY): Manufacturer of the all-electric Nissan Leaf
BYD Company Limited (HKG:1211): Manufacturer of the all-electric E6 (see my post BYD Auto IPO: Is the battered Chinese battery and car maker stock a buy?)

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Tags: ASX:GXY, EPA:SAFT, FMC, GM, HKG:1211, LIT, lithium, lithium ETFs, lithium mining stocks, lithium-ion stocks, PINK:NSANY, REMX, ROC, SQM, TSLA, TYO:6674
Posted in auto stocks, base metals, energy stocks, mining stocks, penny stocks | No Comments »

Aug

2011

Eleven reasons to AVOID investing in Dow Jones Industrial Average stocks

by Fred Mason

When I first started writing this blog post, I was going to call it “How to Invest Safely in Stocks.” My second recommendation was that beginners should start with a handful of the 30 stocks that make up the Dow Jones Industrial Average. Once I started digging through the numbers, though, I was a startled at what I found. Apparently, the blue-chip stocks aren’t the no-brainers most investors like to think they are.

Need proof? Check out this chart I put together of the 10-year returns for each of the 30 Dow Jones stocks:

Company	10-Year Stock Return	10-Year Dividend Return on $1,000 investment	$1,000 is now worth
3M Company	+46.6%	$590.94	$3,458 (aided by a stock split)
Alcoa Inc.	-68.1%	$134.46	$449.82
American Express Company	+41.47%	$122.40	$1,514
AT&T Inc.	-31.8%	$357.12	$1,024
Bank of America Corp.	-51.8%	$718.58	$1,109
The Boeing Company	+12.54%	$218.16	$1,311
Caterpillar Inc.	+208.7%	$787.17	$7,093 (aided by a stock split)
Chevron Corporation	+113.9%	$794.85	$4,791
Cisco Systems, Inc.	-7%	$7.20	$933
The Coca-Cola Company	+45.2%	$284.76	$1,734
du Pont	+11.1%	$372.72	$1,462
Exxon Mobil Corporation	+82%	$319.44	$2,086
General Electric Company	-61.9%	$200.4	$572
Hewlett-Packard Company	+2%	$123	$1,129
The Home Depot, Inc.	-32.7%	$117.58	$780
Intel Corporation	-29.7%	$136.54	$825
International Business Machines Corp.	+57.1%	$127.26	$1,605
Johnson & Johnson	+20.8%	$257.22	$1,426
JPMorgan Chase & Co.	-16.1%	$273.12	$1,107
Kraft Foods Inc.	+8.7%	$283.34	$1,339
McDonald’s Corporation	+198.4%	$387.25	$3,351
Merck & Co., Inc.	-51.2%	$218.70	$698
Microsoft Corporation	-20.1%	$416.64	$1,998
Pfizer Inc.	-56.3%	$196.56	$634
The Procter & Gamble Company	+68.6%	$607.79	$3,884 (aided by a stock split)
The Travelers Companies, Inc.	+11.8%	$120.34	$1,206
United Technologies Corporation	+94.9%	$529.54	$4,305
Verizon Communications Inc.	-31.5%	$305.33	$988
Wal-Mart Stores, Inc.	+4.7%	$130.29	$1,141
The Walt Disney Company	+25.1%	$110.20	$1,330

What’s startling is this: of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!). That’s remarkable considering I didn’t factor in inflation, which have averaged 2.4 percent over the past decade (per FinTrend.com).

That means your odds of throwing a dart at a list of the Dow stocks and hitting a winner are only around 63 percent. That’s not much better than going to the casino and counting a few cards at the blackjack table.

Before you toss your hands up and cash in your IRA for guns and ammo, though, I’d be remiss if I didn’t point out that the average return on $1,000 for the 30 Dow component stocks was $1,842 over the past 10 years. Indeed, a $1,000 investment in Caterpillar Inc. (NYSE:CAT) would be worth $7,093 today. That’s not bad, but seeing the returns from a company like GE, which has crumpled more than 60 percent over the past 10 years is scary. And this year hasn’t been kind to the Dow, either. Take a peek at the YTD returns on each of the component stocks:

Company	Ticker	YTD Return	Dividend Yield
3M Company	NYSE:MMM	-10.8%	2.86%
Alcoa Inc.	NYSE:AA	-27%	1.07%
American Express Company	NYSE:AXP	+3.9%	1.61%
AT&T Inc.	NYSE:T	-3.17%	6.05%
Bank of America Corp.	NYSE:BAC	-51.8%	0.62%
The Boeing Company	NYSE:BA	-10.5%	2.88%
Caterpillar Inc.	NYSE:CAT	-14.7%	2.3%
Chevron Corporation	NYSE:CVX	+2.25%	3.34%
Cisco Systems, Inc.	NYSE:CSCO	-25.8%	1.6%
The Coca-Cola Company	NYSE:KO	+2.28%	2.79%
du Pont	NYSE:DD	-12.1%	3.74%
Exxon Mobil Corporation	NYSE:XOM	-4.02%	2.68%
General Electric Company	NYSE:GE	-17.3%	3.97%
Hewlett-Packard Company	NYSE:HPQ	-41.9%	1.96%
The Home Depot, Inc.	NYSE:HD	-7.9%	3.1%
Intel Corporation	NYSE:INTC	-7.85%	4.33%
International Business Machines Corp.	NYSE:IBM	+8.33%	1.89%
Johnson & Johnson	NYSE:JNJ	-1.51%	3.6%
JPMorgan Chase & Co.	NYSE:JPM	-21.2%	2.99%
Kraft Foods Inc.	NYSE:KFT	+6.47%	3.46%
McDonald’s Corporation	NYSE:MCD	+14.3%	2.78%
Merck & Co., Inc.	NYSE:MRK	-13.1%	4.85%
Microsoft Corporation	NYSE:MSFT	-14%	2.67%
Pfizer Inc.	NYSE:PFE	+0.9%	4.52%
The Procter & Gamble Company	NYSE:PG	-4.07%	3.40%
The Travelers Companies, Inc.	NYSE:TRV	-11.8%	3.34%
United Technologies Corporation	NYSE:UTX	-14.02%	2.84%
Verizon Communications Inc.	NYSE:VZ	-2.6%	5.6%
Wal-Mart Stores, Inc.	NYSE:WMT	-3.23%	2.80%
The Walt Disney Company	NYSE:DIS	-14.6%	1.25%

Just seven out of the 30 Dow component stocks have actually appreciated in value this year. That should give you pause before you invest in a high-profile company solely on the strength of its name and brand.

The Takeaway

Here are three key things I take away from the charts above:

1) Energy is the name of the game. One sector in the Dow has strongly out-performed others in recent years. Namely, oil (ala Chevron and Exxon). And I wouldn’t expect that to change – particularly as fears over inflation mount.

2) Banking stocks have a lot of ground to make up. The fact that JPMorgan Chase is down 16.1 percent over the past 10 years, and Bank of America’s down a whopping 51.8 percent could get you thinking banking stocks have to turn the corner soon. I’d argue there’s a lot of pain for them on the horizon, particularly with the imminent threat of inflation. Banks thrive and dive on interest rates, and all those fixed mortgages BAC’s underwriting at 3 percent could come back to bite them in a high-inflation environment. That’s a big part of why banking stocks have fallen in recent months, and it’s a trend I expect to continue.

3) Follow the macro-trends. If you would have invested $1,000 in gold at the start of 2001, you’d now be holding onto $6,797 in bullion. Energy and inflation are the stories du jour, and your portfolio should reflect that reality. No one can say the next 10 years will play out the same as the past 10, but we can say the demand for oil isn’t going away anytime soon, and neither is our government’s debt problem. You can’t afford to ignore the macro picture anymore, unless, of course, you’re happy rolling the dice in your IRA.

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Tags: AA, AXP, BA, BAC, CAT, CSCO, CVX, DD, DIS, Dow Jones Industrial Average, GE, HD, HPQ, IBM, INTC, JNJ, JPM, KFT, KO, MCD, MMM, MRK, MSFT, PFE, PG, T, TRV, UTX, VZ, WMT, XOM
Posted in Bank stocks, commodities, economy, energy stocks, NYSE, stock tips | No Comments »

May

2011

Will natural gas cars beat out electric vehicles?

by Fred Mason

Electric vehicles be damned… Honda Motor Co.’s (NYSE:HMC) been quietly ramping up for nationwide U.S. retail sales of its natural gas-powered Civic GX this fall. The car is something of an oddity, toiling away in the shadows of more “press-friendly” electric cars.

Click to see the rather enormous gas tanks in the Civic GX (via PickensPlan.com)

We’ve all heard of the electric Roadster from Tesla Motors Inc. (NASDAQ:TSLA), the Leaf from Nissan Motor Co., Ltd. (PINK:NSANY) and the plug-in hybrid Chevy Volt from General Motors Company (NYSE:GM). How many of us have heard of the Civic GX?

The GX runs on compressed natural gas (CNG) and is currently available at 139 dealerships in 33 states. This fall, Honda hopes to have a revamped model in showrooms across the country. And the timing couldn’t be better. Nationwide, gas prices are hovering around $3.95 a gallon (per GasBuddy). Compare that to natural gas where the cost of a Gasoline Gallon Equivalent (GGE) ranges from $0.88 in Oklahoma to $2.60 in New York.

Despite competing with an ever-growing array of hybrid and electric cars, the GX has still taken the “Greenest Vehicle of the Year” award from the American Council for an Energy-Efficient Economy for eight years running. Best of all, Honda’s currently got a monopoly on the CNG passenger car market.

And that’s led to robust sales for the admittedly small market. Sales this year (at 643) are already three times higher than they were at this point in 2010, per the Los Angeles Times. Pending a steady supply of parts out of Japan, Honda hopes to produce at least 2,000 GX’s this year at a base price of $25,490.

Whether natural gas cars will one day out-number electric vehicles is up for debate, but there are several benefits to CNG cars:

Low-cost fuel (ranging from less than $1 to $2.50+ per GGE)
Greener power when compared with electric vehicles (as the overwhelming majority of electricity comes from fossil fuel-based power plants)
85+ percent of natural gas is produced domestically

The biggest hurdle to full-scale adoption of natural gas-powered cars is the lack of filling stations. As of January, there were fewer than 1,000 versus 200,000 gasoline stations (per CNBC). The government’s trying to bump up that number via tax incentives and credits.

One of my favorite selling points for CNG vehicles? Individual consumers can also pony up about $6,000 to get a home-based filling station installed that taps into existing natural gas lines (per the Los Angeles Times). If you log enough miles behind the wheel, a CNG almost sounds like a no-brainer.

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Tags: CNG, electric car companies, GM, HMC, Honda, natural gas, natural gas prices, natural gas stocks, natural gas vehicles, NSANY, TSLA
Posted in commodities, economy, energy stocks | 1 Comment »

May

2011

How to invest in natural gas

by Fred Mason

One of the few commodities that hasn’t benefited from rising inflation is natural gas. Part of the reason is because it’s so plentiful. Indeed, some energy experts believe we have enough domestic natural gas in the ground to supply America’s energy needs for the next 100 years.

As I wrote recently in a post titled Natural gas prices on verge of breaking out?, it appears the market’s betting on the commodity as a key piece of the energy puzzle moving forward. The time to invest is BEFORE a major move in the natural gas market, and here’s a handful of ways you can do that:

1) Natural gas ETFs. The safest and easiest way to invest in natural gas is via an exchange-traded fund (ETF). ETFs trade just like stocks, but rather than investing in a specific company, they invest in an underlying commodity, currency, asset or derivative. In the case of natural gas ETFs, there are two dominant players: United States Natural Gas Fund, LP (NYSE:UNG) and First Trust ISE Revere Natural Gas ETF (NYSE:FCG).

UNG and FCG take two entirely different approaches. UNG, which is the most-traded natural gas ETF, invests in futures contracts for the commodity. Betting on UNG is a bet that the market price for natural gas is going to go up in the near-term. FCG, on the other hand, invests in a basket of natural gas stocks. A bet on FCG isn’t much different than buying stock in several different natural gas producers. By spreading your bet across several different natural gas companies, though, you limit the risk that you might pick a dud.

Check out my post on the Top 5 best natural gas ETFs for more.

2) Natural gas stocks. Should natural gas prices start to rise, so too will the fortunes of natural gas producers. Picking winning stocks in the sector could yield better returns than investing in a diversified ETF. Here’s a short list of some of my favorite natural gas stocks and their performance year-to-date:

Petrohawk Energy Corporation (NYSE:HK), YTD: +33%
Stone Energy Corporation (NYSE:SGY), YTD: +31%
Chesapeake Energy Corporation (NYSE:CHK), YTD: +17%
EnCana Corporation (NYSE:ECA), YTD: +13%
EXCO Resources, Inc. (NYSE:XCO), YTD: +5%
Questar Corporation (NYSE:STR), YTD: -2% (yields 3.5%)

Keep in mind that natural gas companies aren’t all equal. As with any industry, natural gas companies could be involved in some or all of the production chain: from exploration to production, transportation, storage or even companies that supply parts or technology to larger natural gas companies. Do your research and know what part of the supply chain you’d like to invest in before you pick your stock. Large, diversified multinational gas producers will likely be the safest stocks, but they probably won’t yield as large a return as a small natural gas exploration company with a track record of uncovering fresh deposits.

3) Natural gas futures. Sophisticated investors can dip their toes into commodities exchanges like the NYMEX in order to invest directly in natural gas. You’ll need quite a bit of capital to get started and a high risk tolerance as natural gas can be volatile. NYMEX futures contracts trade in increments of 10,000 million British thermal units (mmBtu).

When you buy a natural gas futures contract, you’re agreeing to purchase 10,000 mmBtu at a fixed price at the time of the contract’s expiration, which could range from next month to six years in the future. Most commodities traders roll their contracts into new contracts or sell them outright before they reach expiration date. E-mini Natural Gas futures contracts are also available on the NYMEX. Mini contracts are a quarter of the size of a standard contract (2,500 mmBtu).

4) Natural gas mutual funds. Fidelity offers a natural gas mutual fund called the Select Natural Gas Portfolio (Ticker: FSNGX). The fund invests predominantly in the common stocks of natural gas producers, refineries, and distributors. The minimum initial investment in the fund is $2,500 and your returns will be subject to expenses and fees. Plan to keep your money in the fund for at least 30 days, or you’ll be subject to a short-term redemption fee of 0.75%.

5) Cars of the future? The automotive industry has started experimenting with natural gas vehicles (NGVs), and Honda Motor Co. (NYSE:HMC) has made a big bet on natural gas. In fact, Honda’s the only company that’s currently selling NGVs in showrooms in the U.S. You can walk away with a 2011 Honda Civic GX, which is powered by compressed natural gas (CNG), for a starting price of $25,490. If NGVs catch on, Honda stock should be a big beneficiary. If NGVs falter, fear not, as Honda’s diversified into hybrids, hydrogen-powered cars and electric vehicles as well.

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Tags: CHK, ECA, FCG, FSNGX, HK, HMC, natural gas, natural gas stocks, natural gas vehicles, NGV, NYMEX, SGY, STR, UNG, XCO
Posted in commodities, energy stocks, ETFs, mutual funds | No Comments »

May

2011

Natural gas prices on verge of breaking out?

by Fred Mason

Commodities trade in cycles and the cycle hasn’t been kind to natural gas prices since the summer of 2008. Just three years ago, natural gas was trading around $13 per million BTUs (mmbtu). Today, near-term futures contracts for the commodity are trading down nearly 70 percent – around $4 per mmbtu.

Indeed, it’s probably safe to say natural gas is a candidate for the Worst-Performing Commodity of the Year Prize. It’s down more than 3 percent since the start of the year, and it’s traded under $5 for longer than six months – something natural gas hasn’t done for nearly a decade.

But there are signs that the market for natural gas is heating up. Long-term futures contracts for delivery in June 2015 have spiked 6.7 percent, per Barron’s, and even more (9.2 percent) for June delivery in 2016. That means investors are betting prices might not move in the near-term, but they’re convinced prices are going to start climbing soon.

There are a number of reasons, but none as apparent as the nuclear crisis in Japan. As governments around the world have halted or delayed the permitting process for new power plants, alternatives are beginning to look attractive. And no matter how much we’d all like to say solar and wind power should be able to fill the power gap in the years to come, that’s just not likely. Our power needs are too great.

In the U.S. alone, energy demand is expected to double by the year 2030, and investors are betting natural gas will be one of the biggest winners in the energy space in the years to come. Here are three reasons why you might want to increase your exposure to natural gas:

1) The trend has already started. As mentioned above, futures contracts for natural gas for delivery in 2015 and beyond have already begun spiking. Big money (i.e. professional money) is already betting on the commodity despite the fact that natural gas prices in the near-term haven’t changed. The writing is on the wall.

2) The government’s on your side. In March, the Obama administration proposed rules that would sharply increase the emissions standards for coal or fuel-oil power plants (per Barron’s). That’s going to force power companies to make a tough call: spend billions upgrading outdated plants, or shutter the plants entirely and start afresh with cleaner, more efficient gas-powered plants. If ever there was a time to make the costly jump from coal power to gas, it’s probably now, particularly as demand for coal is rising around the world.

3) Natural gas-powered cars? One way to kick our dependence on foreign oil is by switching to natural gas vehicles (NGVs). There are already 120,000 vehicles running on the fuel in the U.S. (per CNBC), and Honda recently went to market with its NGV GX. The retail price? A modest $25,490. Of course, there will need to be some dramatic changes in our transportation infrastructure for NGVs to take off.

The Obama administration’s working on just that with proposals for consumer tax credits on NGVs. Already, the President signed tax changes into law that allow gas stations to claim a $30,000 tax credit if they install a natural gas pump. Some stations are catching on. Check out CNGPrices.com to see if there are any natural gas filling stations near you.

At the moment, there are fewer than 1,000 filling stations offering compressed natural gas (CNG), but that number is growing. Last year, Americans consumed the equivalent of 360 million gallons of CNG, according to NGV America. That’s the second year in a row that consumption has risen by more than 25 percent a year. And we could be just getting started with gasoline prices becoming more onerous. All in all, that’s good news for natural gas investors. Expect market sentiment toward CNG to turn soon. When it does, the ramp up in prices could happen quickly, and we’ll probably look back on $4 natural gas as a relic of the past.

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Tags: Honda, natural gas, natural gas vehicles
Posted in commodities, economy, energy stocks | No Comments »

May

2011

BYD Auto IPO: Is the battered Chinese battery and car maker stock a buy?

by Fred Mason

BYD Company Limited (HKG:1211) got one of the investment world’s biggest endorsements when a Warren Buffett company ponied up $230 million to invest in BYD during the height of the financial meltdown in 2008. Now, BYD Auto, which has long traded on the Hong Kong Stock Exchange, has applied to start trading on China’s Shenzhen Stock Exchange as it seeks new capital for expanding its operations. Not everyone’s sold on the company’s future prospects, though. Here are four reasons to consider avoiding shares in BYD’s latest IPO:

1) Time for a turnaround? Things haven’t looked good for BYD over the past year. The company’s Hong Kong-listed stock has tumbled 60 percent since the start of the year on weaker sales and the conclusion of a government subsidy for economy vehicles in China.

Sensing problems on the horizon, BYD has undertaken big plans to orchestrate a turnaround. The company has partnered with Daimler AG (PINK:DDAIF) to build its first all-electric car and its announced plans to unveil an SUV and several additional higher-end vehicles with larger profit margins.

BYD’s management is fully aware of the mounting competition it faces from GM, Volkswagen and Nissan. We’re “preparing for a price war,” BYD’s head of sales Xia Zhibing wrote on his blog last month (per Bloomberg). The problem is, BYD doesn’t have much room to tinker with its pricing. Profit margins were cut in half last year to 5 percent on growing competition in the Chinese market.

2) The E6 as savior? After several delays, BYD promises its on target to begin delivering it’s all-electric E6 to corporate and government clients in the U.S. this year. The E6 is expected to be available for retail consumers in the U.S. next year and should have a range of 186 miles on a single charge. Although BYD’s the world’s largest battery maker, some suspect the E6′s delays are due to problems achieving the electric car’s promised range.

If it’s any indication, American car reviewers have been less than impressed with BYD’s other offerings to date. The New York Times published a scorching review of the F3DM – a combination pure-electric/gas-powered car that operates like the Chevrolet Volt. “The steering wheel vibrates. The dashboard hums. You feel the vibration in your molars,” a reviewer wrote after test-driving the car in February.

3) Looming litigation. If the E6 does indeed make it to the U.S., the company could face intellectual property lawsuits. BYD has long been accused of backwards engineering existing cars, modifying them slightly and slapping their own logo on the hood. The company’s also been accused of falsely touting high safety standards. “If you shut the doors too hard, they fall off,” an unnamed consulate told Reuters.

4) The Sokol sting. Much of the credit for Warren Buffett’s investment in BYD goes to David Sokol – the embattled exec who left Berkshire Hathaway Inc. (NYSE:BRK.A) at the end of March, and has since taken fire for allegedly investing in a company that Berkshire ultimately acquired. “Whether or not they can manufacture their own cars isn’t relevant to us, because we see their real expertise is in the development of the batteries, the motors, the control systems for that,” Sokol told Reuters in January 2009. “That’s not to say that they can’t make a nice car, but a lot of people can make a nice car. The breakthrough from our perspective is the battery technology.” Until we get a real look at how BYD’s batteries perform in the E6, the rest is just smoke and mirrors.

Indeed, the whole thing has me wishing BYD would go back to focusing exclusively on batteries. The company has said a big chunk of the funds from it’s China IPO would go toward developing lithium-ion and solar batteries (per Reuters), but it’s also planning to spend heavily on growing BYD’s automotive line. Unless there’s a major cultural shift in the company’s highest level of leadership, though, I wouldn’t expect that turnaround to happen anytime soon. BYD may be good at batteries, but they’re a long ways off from being good at making cars.

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Tags: battery stocks, BRK.A, BRK.B, BYD, BYD Auto, e6, lithium, lithium-ion stocks, Warren Buffett
Posted in auto stocks, Chinese stocks, energy stocks, IPOs | 1 Comment »

May

2011

Glencore IPO: 5 things you don’t know about the world’s largest commodities trader

by Fred Mason

Glencore’s IPO date is set for May 19, 2011, when the company’s stock will begin trading on the London Stock Exchange. A week later (on May 24 or May 25) Glencore stock will also start trading in Hong Kong. Here are five facts you probably don’t know about the world’s largest commodities trader:

1) Raw materials = massive profits. Last year, Glencore logged earnings before interest, taxes, depreciation and amortization (EBITDA) of $6.2-billion (per the Globe and Mail). Glencore makes its billions by having its fingers in lots of important raw materials pots from oil to coking coal, rice and aluminum. While it started strictly as a commodity trading firm, the company began acquiring ownership stakes in mines and agricultural producers during the late 1980s. With ongoing global currency debasement, profits at Glencore have mushroomed quickly. One of the company’s biggest assets comes in a 34.5 percent stake in UK miner Xstrata PLC (LON:XTA). Glencore’s proportion of Xstrata’s earnings amounted to $1.7 billion all by itself in 2010 (per the Financial Times).

2) Just how big is the world’s largest commodities trader? Ummm… quite big. Glencore International AG’s revenues hit $145 billion last year. Keep in mind, that’s revenue, not market cap. By comparison, the New York-based Goldman Sachs Group, Inc. (NYSE:GS) generated $49 billion in revenue last year and has a market cap of $79 billion. Pre-IPO, Glencore is one of the largest privately-held companies in the world. Forbes names the agricultural company Cargill as the largest privately-held company in the U.S. at the moment, and they estimate the company generated $109 billion in revenue last year. Glencore employs 57,500 people around the world. In a word, Glencore is massive.

3) Born in a four-room flat. Founded by trader Marc Rich and several colleagues, Glencore had a humble start in a tiny apartment in central Switzerland. The company was called Marc Rich + Co back then, and Rich is often credited with single-handedly founding the spot market for crude oil. The company was successful virtually overnight reaping $28 million in its first year trading minerals, metals and oil, according to Australia’s Sky News. The next year, Marc Rich + Co pulled in $50 million, and its continued growing remarkably ever since.

4) Instant billionaires. After digging through Glencore’s 1,600-page prospectus, Forbes has confirmed that the company will create at least six billionaires overnight when the company goes public. At the top of the list sits Glencore’s current CEO Ivan Glasenberg. Glasenberg will hold 15.8 percent of the company (1.09 billion shares) for a net worth of $9.5 billion. “I can’t think of any other IPO where an individual’s stake was valued this highly,” Jay Ritter, a finance professor at the University of Florida, told Bloomberg. Other instant billionaires include the directors and co-directors of various commodity departments, and Glencore’s CFO, Alex Beard, as well an unnamed mystery shareholder.

5) High risk, high rewards. Part of what’s made Glencore into the massive commodities titan it is today is the company’s propensity to take risks others are unable or unwilling to take. Their stake in Katanga Mining, which operates in the Democratic Republic of the Congo, is a prime example. Congo’s loaded with natural resources, but political instability in the region means some of that metal might never make it to market. Another London-listed mining company, First Quantum Minerals, was recently stripped of its copper mines by the DRC government (per the Financial Times). Katanga could suffer the same fate … or it could help make a fabulously profitable Glencore all the more appealing in the years to come. Investors will decide whether they want to go along for the ride in two short weeks.

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Tags: copper stocks, Glencore, Glencore IPO, GS, London Stock Exchange, Xstrata
Posted in base metals, coal stocks, commodities, energy stocks, IPOs, mining stocks, precious metals, private companies | No Comments »

May

2011

Brightsource IPO: 6 reasons to invest in solar giant

by Fred Mason

BrightSource Energy filed for a long-awaited IPO last week. The company has made several huge bets on a fledgling form of solar power, and they’re hoping investors will help finance the costs. Here are 6 reasons to invest in the Brightsource IPO:

1) Betting on solar thermal. Brightsource’s technology has more in common with traditional power plants than the solar panels most of us are familiar with. The company plans to cover swaths of desert land with giant, computer-controlled mirrors that will concentrate sunlight on a “solar receiver.” That receiver will heat water, which will, in turn, power steam turbines to generate electricity.

2) Revolutionary scale. Brightsource has the land and ambition to truly revolutionize the way California gets its power. As it stands, California gets just 1 percent of its power from the sun, according to GreenProphet.com. If Brightsource is able to develop all 110,000 acres of its land throughout the Southwestern U.S., it has the potential to supply 13 percent of California’s energy needs every year.

3) One word: “Ivanpah.” BrightSource broke ground on its massive 392-megawatt Ivanpah Solar Electric Generating System in October. The project’s scale is daunting. When construction wraps up in 2013, Ivanpah should nearly double the amount of commercial solar thermal electricity produced in the U.S., and it’ll yield enough juice to power more than 140,000 homes in California.

The project is currently on hold pending a U.S. Fish and Wildlife Service review of the complex’s threat to an endangered desert tortoise. Brightsource is optimistic, though, that the delay won’t threaten Ivanpah’s 2013 target completion date.

4) Heavyweight investors. You can often judge the quality of an investment by who laid down cash early, and Brightsource has gotten some ringing endorsements. NRG Energy, Inc.’s (NYSE:NRG) chipping in $300 million for the Ivanpah project, and Google’s investing another $168 million. Even the U.S. Department of Energy’s in the game. The agency is guaranteeing $1.6 billion in loans to Brightsource to see Ivanpah through completion.

5) By way of executive order. When California Governor Arnold Schwarzenegger signed Executive Order S-14-08 in 2008, the solar industry went mainstream overnight. The rule stipulates that California must get 33 percent of its energy from renewable resources by 2020. Better yet, the requirement doesn’t count nuclear power and hydroelectric power as “renewable.” That means the push for solar and wind energy is greater in California than anywhere else in the country. Solar producers like Brightsource are big winners in the deal.

6) The bottom line. Brightsource has a long way to go before it’s profitable. The company generated just $13.5 million in revenue last year. It spent $71.63 million during that same period, per Reuters. Still, there’s a lot of work in the pipeline that could add up to big profits down the road. All told, the company “has $4 billion of revenue opportunity for us through sales of our systems,” most of which will come through 14 power purchase agreements California energy companies PG&E and SCE. Brightsource won’t be rolling in the green anytime soon, but barring any other tortoise-related problems, its future definitely looks bright.

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